1. What is Required Rate of Return?

The Required Rate of Return (ROR) is the minimum annual percentage return an investor expects to achieve from an investment. For retirement planning, it represents the rate needed to grow current savings to meet future retirement goals.

2. How Does the Calculator Work?

The calculator uses the Required ROR formula:

Where:

• \( FV \) — Future value (retirement goal amount in $)
• \( PV \) — Present value (current savings in $)
• \( n \) — Number of years until retirement

Explanation: This formula calculates the compound annual growth rate needed to grow your current savings to your desired retirement amount over a specified time period.

3. Importance of ROR Calculation

Details: Knowing your required rate of return helps determine appropriate investment strategies, assess risk tolerance, and set realistic retirement goals based on your current financial situation.

4. Using the Calculator

Tips: Enter your desired retirement amount as Future Value, current savings as Present Value, and years until retirement. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a reasonable required rate of return?
A: Typically 5-8% for balanced portfolios. Higher returns usually require higher risk investments.

Q2: How does inflation affect the calculation?
A: Future Value should be in today's dollars. If using future dollar amounts, adjust for expected inflation.

Q3: What if my required ROR seems too high?
A: Consider increasing savings, working longer, or adjusting retirement lifestyle expectations.

Q4: Should I include Social Security in my calculations?
A: Yes, subtract expected Social Security benefits from your Future Value for more accurate personal savings requirements.

Q5: How often should I recalculate my required ROR?
A: Annually or whenever your financial situation changes significantly (salary change, inheritance, etc.).